Conquer Your Financial Fears in 5 Steps

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It’s nearly Halloween, so let’s talk about something really scary: Many of us have the habit of leaving our finances to chance. We hide from financial issues that scare us, but all that does is leave us open to frightening surprises.

As with spooky monsters under our beds, finances do less harm when you shine a light on them. So, follow the advice of financial gurus and face these common financial fears directly.

1. Educate yourself about risk

Yes, there is a risk of losing money on stock market investments. But if you avoid risk altogether, you also give up the potential returns of the market, which are pretty hard to replicate anywhere else.

Solution: Educate yourself. It is possible to get started with a small amount of money in order to learn your way around the various kinds of investments. Money Talks News founder Stacy Johnson offers a primer on how to invest. It explains how to address risk by diversifying, using mutual funds and investing for the long term. As Stacy writes:

“I’ve been buying both individual stocks and mutual funds for decades. I don’t remember the trepidation I must have felt at first. But one thing’s for sure: The more I’ve learned, the fewer mistakes I’ve made and the less fear I’ve felt.”

2. Ditch your bad debt

Being wary of debt is smart. But being so afraid you freeze isn’t. And it’s important to understand the difference between good debt and bad debt.

Good debt is used on a purchase that appreciates in value — such as a mortgage for a home, or even a loan for a college education. Bad debt is incurred when you splurge on luxuries such as clothes, vacations, edibles or even cars. Debt piles up when you are living beyond your means.

Solution: If you’ve been in denial about your mounting debt, it’s time to tackle it. The way to get started, as outlined in this step-by-step approach, is to get all your debts down on a spreadsheet, so you can begin to put a plan in place.

If you need help, stop by our Solutions Center and seek out a professional who specializes in helping debt-laden individuals consolidate debt and create a workable payment plan.

3. Create a sound budget

Not tracking your expenses is like driving with your eyes closed. Clearly, what you don’t know about your finances can hurt you.

Solution: Set a budget for a day, then a week, and then gradually increase the range. Among our top tips for sticking to a budget is to start with a goal you’re working toward. Doing so will make it easier for you to cut spending.

Track your expenses with software, such as that offered by our partner, You Need a Budget.

4. Don’t ignore estate planning

Put your affairs in good order, and you won’t have to fear that your children or other heirs will struggle to figure it out — and curse you — after you’re gone.

Solution: There are eight documents that you should put in place, starting with a last will and testament. That is the main way to ensure you control what your spouse, children and other dependents receive in the event of your death. You can also specify funeral arrangements.

You can create your own will, and our partner Rocket Lawyer can help with the process. For more on Rocket Lawyer and creating your own will, check out “Do I Really Need a Will?.”

Or if it makes you more comfortable, enlist an attorney’s help.

5. Prepare now for tax time

Everyone has heard the horror stories of people miscalculating their taxes — or ignoring them — and ending up with a budget-busting bill.

Solution: Lay the groundwork now, so you don’t have to scramble during the last-minute spring rush. If your taxes are relatively simple, now would be a good time to familiarize yourself with online tax software so you can file without paying a tax preparer.

If you want someone else to tackle your taxes, get that help in place now. Ask family and friends for suggestions on qualified CPAs. Then interview two or three. That way you’ll be prepared after you ring in the new year.

For more, read “ How to Get the Right Tax Pro at the Right Price.”

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